The first-ever Private Equity Healthcare Investor Forum took place in New York City on April 27, 2016 at the Westin Times Square. We were invited to attend by the sponsor, Private Equity International. The conference was originally planned to span two days, but was cut down to a single, panel-crammed event a few weeks before. Attendance was spotty, and at times it seemed the bulk of the audience were all speakers. Don’t get us wrong, we’d go again, if invited.
The most interesting panel, in our opinion, was moderated by Richard Zall, partner and chair of Proskauer‘s Health Care Department. Titled “When healthcare meets private equity: analyzing investor trends and drivers,” it featured Laurent Ganem, CEO of G Square Healthcare Private Equity; Jeffrey Jay, managing director of Great Point Partners; Todd Kibler, principal at Hammes Partners; John McKernan, VP at The Riverside Company and Amit Varma, managing partner at Quadria Capital.
Some things we heard:
Jeff Jay noted that, if you can get a platform company at 9x to 10x EBITDA and do add-ons at 3x to 4x EBITDA, that brings down your cost of entry.
Amit Varma, whose targets are healthcare companies in and around Southeast Asia, scoffed at the notion that 12x to 14x EBITDA was exceptional. “Valuations are insane in Asia,” he told attendees. “They’re in the high 20s sometimes. We seen the teens as normal.” Why so high in Asia? “Because of the growth potential. If you buy a company and just leave it alone, it will grow 15% a year, organically.”
The billion-dollar funds are coming down-market here in the United States, Jay said, and will pay 15x, 16x, 17x EBITDA for a company worth 10x. That’s hard to compete against, obviously, especially when Chinese funds will pay 20x to 30x EBITDA.
PE firms are having a hard time putting their money to work. Great Point Partners has looked into low-growth businesses like physical therapy or occupational therapy, where the growth potential is limited. Those are still selling at 13x to 14X EBITDA, “which doesn’t make sense to us,” Jay added. Duly noted.